Best's Review



Risk Adviser
A Stubborn Truth

Debunking the many misconceptions homeowners and business owners have about flood insurance.
  • Lance Ewing
  • April 2019
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Lance Ewing

Much like with life insurance, most homeowners and small-business owners are reluctant to discuss or do not want to think about potential flood losses.

Lance Ewing

Mark Twain once quipped, “If a cat sits on a hot stove, that cat won't sit on a hot stove again. That cat won't sit on a cold stove either.” Or so the story goes.

Yet, that is not the case when it comes to flood insurance. Many homeowners, renters and even commercial corporations, who have had previous flood claims and were not covered, still do not purchase flood policies. The facts substantiate that since 2009 the number of policies issued in the United States by the National Flood Insurance Program (NFIP) has decreased by almost 10%. Many of these same homes and businesses that are declining to buy flood coverage are still susceptible to flooding or have even filed previous flood claims. So why do homeowners and businesses that have been or could be adversely and financially impacted by flooding not buy flood insurance? A few reasons may include:

Lack of Knowledge. Many homeowners and small-to-mid-tier business owners are under the misguided belief that their current property policies cover flood. Insurance agents and brokers need to improve their marketing to clients. Including a flood insurance quote with every homeowners and commercial property quote would be a good start. In addition, the federal government and NFIP have to do more with marketing the coverage, specifically where flooding has occurred repeatedly.

Apathy. Many policyholders believe that it will not happen to them. The fact is if it rains on their house or business they need flood coverage.

Much like with life insurance, most homeowners and small-business owners are reluctant to discuss or do not want to think about potential flood losses. Unless their financial lending institution or mortgage company mandates it, many will not buy flood insurance. It is the“it won't happen to me” approach.

Flood Maps Are Erroneous. In October 2018, the City of Mexico Beach, Florida was devastated by Hurricane Michael. Federal Emergency Management Agency (FEMA) flood maps for Mexico Beach were last updated in 2009. Many of the homes damaged by flood in Mexico City were not in FEMA's flood zones according to the maps. Therefore, many residents and businesses did not purchase flood coverage. This was also true in other parts of the United States during the 2017 hurricanes Harvey, Irma and Maria.

FEMA Disaster Grants. In 2015, the University of Pennsylvania Wharton School's Risk Center (in conjunction with the flood resilience alliance) conducted a study in which one of the findings was that, “If people know that they can receive a fairly sizable amount of money 'for free' after a disaster, they will most likely include this knowledge in their insurance decision-making process, giving rise to moral hazard.”

In 2017, the average FEMA payment was more than $33,000 for floods and disaster losses. While not nearly enough to cover an entire loss, it does play in the back of homeowners' minds that the government will provide some relief. This may lead to purchasing less flood coverage than needed or not buying any at all.

Education on purchasing flood insurance is the responsibility of the insurance industry, financial institutions and the government so home and business owners do not get burned twice by not having flood coverage.

Best’s Review columnist Lance Ewing is executive vice president of Global Risk Management for Cotton Holdings Inc. He also is the former president of the Risk and Insurance Management Society. He can be reached at

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